Qatar National Bank (QNB) has affirmed that the large ASEAN economies are relatively resilient to sudden changes in risk sentiment and capital flows.

In its weekly economic commentary, QNB considered such resilience as a major source of support in a context of higher uncertainty associated with global monetary conditions and regional FX volatility.

The economic commentary's analysis focused on the large Southeast Asian (ASEAN) economies of Indonesia, Thailand, Malaysia, and the Philippines, through the assessment of external vulnerability along two dimensions: the external financing needs and the overall level of official FX reserves. Countries with large external financing needs are required to finance it either with additional foreign capital or drawing down their own FX wealth.

The commentary stated that the official FX reserves can be an important backstop to absorb external shocks. However, the level of FX reserves should be considered in context, including not only short-term external financing needs but also other key macro metrics.

It pointed out that Thailand is still in a good position to weather sudden changes in capital flows. Even with international tourism still significantly below pre-pandemic levels, the situation remains stable. The country continues to run sizable current account surpluses, which helped it amass USD 221 Bn in official FX reserves, comfortably covering 209 percent of the IMF reserve adequacy metric.

The economic commentary deemed Malaysia, a big producer of both manufacturing goods and commodities, as another resilient ASEAN economy. Like Thailand, the country had also run persistent current account surpluses for years, as a net oil and soft commodity exporter, underlining that Malaysia has been positively affected by the overall strength of commodity markets in recent years, which resulted in a bigger current account surpluses.

Malaysia's reserve adequacy metrics are much tighter than those for Thailand, with the central bank holding almost half of the amount of FX reserves that Thailand holds at USD 113 Bn. However, Malaysia is still in the safe zone of the IMF reserve adequacy metric with a 115 percent coverage.

The economic commentary highlighted that the Philippines is a net external borrower, which means that it runs current account deficits. With a large trade deficit that is currently only partially offset by sizable inflows of remittances from the community of Philippine expatriate workers, the country is expected to run a current account deficit that amounts to around 2 percent of GDP. While the deficits are partially driven by a healthy push for much needed investment, the deterioration of the external position has so far been sizable. However, monetary authorities control ample FX reserves. Official reserves of USD 103 Bn cover 196 percent of the IMF reserve adequacy metric.

With respect to Indonesia, it is traditionally the large ASEAN country most exposed to potential external shocks, is now back to a current account deficit position. This comes after a short hiatus benefiting from a commodity boom that has propped up its external revenues, due to high prices for coal, gas and palm oil. In fact, the country is now expected to run a current account deficit of about 1 percent of GDP this year. The deficit is expected to last for longer, as the delivery of a sizable pipeline of capital expenditure projects will require more imports. Indonesian official FX reserves amount to USD 136 Bn, covering 112 percent of the IMF reserve adequacy metric.
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